Gold as an asset is well respected in all around the globe. People have been hoarding gold throughout the history because it is considered as a symbol of strength and wealth. As a currency gold was first used and appeared in 656 B.C
It is a concept that when normal currency falls, gold is the only metal that can save us. So in short, gold is something, which can be taken as a solid insurance against tough times. Underneath are some importance points to think why saving gold is important for us.
Worth of Gold throughout history
Unlike paper money, gold has maintained a respectable worth throughout the history. People have always hoarded gold and passed it from one generation to another. It can be converted into coins and it cannot be melted very easily. Moreover, the gold does not corrode at all. Its value might have decreased but no one can consider it unimportant.
Importance and Weakness of US Dollar
The US Dollar is one of the strongest currencies in the world because most countries do trade in this currency. When the value of dollar drops (as it did from the Year 1998 to 2008), people often jump to buy gold. The high demand of gold in such crunch time increases the price of this metal in a very short span of time. The price of gold almost tripled from 1998 to 2008. There were many reasons behind the fall of US dollar but it is important to understand that the weakening value of paper money gave a strong boost to the price of gold.
Strong defense against inflation
Gold has always been a great savior against inflation because its value increases with the increment in the cost of living. Trade and stock market has witnessed that the value of gold soar when the stock market falls due to higher inflation rate. Because this metal is considered valuable throughout the world, therefore people tend to purchase it when their local currency loses its value.
Safeguard against deflation
The world has not witnessed deflation since the Great Depression of 1930. Deflation is dangerous for any economy and during this the prices endure a sudden plunge. When the economy is burdened by debt and the business ends, people start to purchase gold in order to safeguard their wealth. The best way to save wealth or cash is none other than hoarding gold.
Political Uncertainty
It is also proved that gold does not hold it value during the time of economic crises but it stays strong in the time of political crises too. As an investment, Gold performs best when political scenario of the world is not ideal or in the times of civil war. In recent history, the prices of gold soared during Brexit and European Union economic crises.
Reduction in the gold supply
The world has seen a vivid reduction in the supply and production of gold from the year 2000. It is not hard to understand that when production and supply of something reduces, the price and demand of it increases in a big way.
Increasing demand of Gold
Two emerging economies of the world – India and china have thoroughly increased the demand of gold. In China, gold bars are a traditional way of saving cash and in India owning gold is a part of their culture. Moreover, India has now become the second largest gold storing nation in the world. In India, people love to buy gold because it is a part of their culture. During the wedding season (mostly in October), the world sees a huge demand for gold. On the other side, its demand has increased thoroughly among the investors because of uncertainty in the stock market in recent few years. The investors see gold as a very powerful commodity as a safe future investment.
Conclusion
In the times of crises, gold always maintains a high value. When other investment markets such as stock and bonds endures a slump, this commodity help the investors to regain their confidence financially. Gold can be considered as an integral part of investment portfolio because its value increases when the value of paper based currencies decreases. Although investing in gold can be tricky as a short-term investment but its importance cannot be ignored to achieve long-term investment goals.
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